Jobless claims hit six-month low

Productivity surges 5.7% as cost-cutting pays off

WASHINGTON (CBS.MW) -- Job losses are slowing even as U.S. companies continue to reap the benefits of belt-tightening.

The number of Americans filing for state unemployment benefits fell to the lowest level in six months last week, the Labor Department said Thursday, a strong signal that the labor markets may be stabilizing.

Meanwhile in a separate report, the department said productivity in the non-farm business sector surged again in the second quarter of the year, growing at a 5.7 percent annualized pace. See full story.

Consumers were doing their part to keep the economy rolling. Retail stores reported their July sales figures on Thursday, with most companies meeting or exceeding expectations. Same-store sales were up a healthy 4.3 percent from a year-earlier, according to economists at Bank of Tokyo-Mitsubishi. See full story.

The triple dose of good economic news helped boost U.S. stock markets. The broad S&P 500 index was up 0.5 percent at noon. See Market Snapshot.

With sales rising and productivity up, "there must be some serious gains going on in either profits or wage rates," said Bill Cheney, chief economist at John Hancock Financial.

"If it's going to profits, we should see more capital spending and hiring ahead, and if it's going to wages or lower prices, that should sustain consumption growth," Cheney said. "Either way it's good for the outlook."

"Companies were really moving down the cost curve," said LPL's Anderson.

Aside from the rosy retailers' reports, the jobless claims numbers got the most attention on Wall Street. The average number of new claims over the past four weeks dropped to 397,250 a week, the first dip below 400,000 since Feb. 22 and the lowest since Feb. 15. Read the full release.

The 400,000 mark is a benchmark used by economists, who say that little job growth is possible with claims that high.

Indeed, the monthly payroll report shows no net hiring in any of the past six months.

The number of initial claims in the week ended Aug. 2 fell by 3,000, to 390,000, the lowest since Feb. 8.

The four-week average is widely seen as a more reliable indicator of job destruction than the weekly number. Summer plant closings make the Labor Department's weekly readings even more suspect this time of year.

Meanwhile, the average number of weekly continuing claims for state benefits over the four weeks ended July 26 fell by 22,000 to 3.63 million, the lowest in three months. Continuing claims rose by 72,000 in the week ended July 26 to 3.69 million.

The figures don't include some 830,000 people receiving extended federal benefit checks, which become available once state benefits are exhausted, typically after 26 weeks.

Food for FOMC thought?

The claims report adds to the mounting evidence that the labor market is stabilizing.

"There has been some 'trend' improvement in the labor market," said Mat Johnson, chief economist at Quantit Group. "However, the improvement is still slight and is not consistent with a marked pickup in hiring activity."

However, UBS chief economist Maury Harris says the falling trend in both initial and continuing claims "raises hopes that the next employment report will show improvement."

The report comes less than a week before the Federal Open Market Committee meets to consider changes to monetary policy. Analysts are unanimous in their opinion that the FOMC will not budge interest rates from a four-decade low of 1 percent.

More than 9 million Americans were classified as officially unemployed in July, with more than 2 million out of work for longer than six months. However, the jobless rate fell back to 6.2 percent in July from a cycle-high of 6.4 percent in June, as hundreds of thousands of people dropped out of the work force. See related story.

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